Tax planning is a big hot button for a lot of people. They want to know that we will help them plan out their taxes. Then they get confused. Wait, are you my accountant? We really aren't. What we do is guide your accountant to all the pieces that make your financial life better. That sentence is the whole article. The rest of this page explains what it means in practice.
Two jobs that sound alike
Your CPA or tax preparer does a specific, valuable job. They take a year that has already happened and report it correctly. Every W-2, 1099, and brokerage statement has to land in the right place, every deduction you are entitled to has to be claimed, and the return has to be filed on time. When it is done, the year is closed. There is very little anyone can do to change the result at that point, because the decisions that produced it were made months earlier.
Tax planning works on the years that have not happened yet. It asks a different question: given everything you own and everything you plan to do, how do we arrange the next several years so you keep more of what you have built? The decisions that answer that question have to happen before December 31. Many of them happen years in advance.
| Tax preparation | Tax planning | |
|---|---|---|
| Looks at | The year that just ended | The next several years, often the rest of your life |
| Main question | Is this return accurate and complete? | How much tax will we pay over time, and can we lower it? |
| When it happens | January through April | All year, with most decisions made before December 31 |
| Who does it | Your CPA or enrolled agent | Your advisor, in coordination with your CPA |
| The result | A filed return, and a refund or a bill | A set of decisions: which accounts to draw from, when to claim Social Security, whether to convert, how to give |
Why the two get confused
Both jobs involve the same documents, the same numbers, and the same April deadline in the background. So when someone hears that we put a lot of emphasis on tax planning, it is natural to assume we are going to prepare the return. We are not, and we think that is the right division of labor. Your CPA is responsible for accuracy and filing. We focus on how the decisions in your financial plan are likely to be taxed over time. A good working relationship between the two helps keep you from paying more than you need to.
People want to know that you'll help them plan out their taxes. Then they get confused. Are you my accountant? We really aren't. What we do is help guide your accountant to all these pieces to make your life better. Hunter Adair, Principal
What we do with your return
The first document we ask a new client for is a copy of their most recent tax return. We are not going to refile it. We ask for it because a return is the best map of someone's financial life that exists. It shows which accounts income is coming from, how much room is left in the current bracket, whether Social Security benefits are being taxed, whether Medicare premiums are being pushed up by income from two years ago, and whether charitable giving is being done in the most expensive way possible.
We read it line by line. Then we model the next several years with dedicated tax planning software and look for the places where a decision made this year changes the bill in a later year. A few of the things we are looking for:
- The low-income windowMany people have a stretch between leaving work and taking required minimum distributions, which now begin at 73, or 75 for anyone born in 1960 or later. In those years taxable income often drops. That window can be the cheapest time to move money from a traditional IRA into a Roth, realize gains, or both. If nobody is watching, it closes unused.
- Which account pays for this yearRetirement spending can come from a taxable account, a traditional IRA or 401(k), a Roth, or some mix. The order matters. The wrong order can mean paying tax on Social Security you did not have to pay tax on, or landing in a higher Medicare premium bracket two years from now.
- Social Security and the tax underneath itUp to 85 percent of your benefit can be taxable, depending on your other income. The claiming decision and the tax decision belong together, and they should be made together.
- Medicare premiums set by your tax returnMedicare looks back two years at your income to decide what you pay. A large Roth conversion or a property sale at 63 shows up as a higher premium at 65. We plan around that instead of being surprised by it.
- Giving that countsAfter 70½, a gift made directly from an IRA to a charity can satisfy a required distribution without the income ever reaching your return. Giving appreciated stock instead of cash can be better than writing a check. Neither idea appears on a tax return as a suggestion. Someone has to plan it.
- Then we hand the plan to your CPAWe put the strategy in writing, share it with your accountant, and make sure the return filed in April reflects the decisions made the year before. That is what guiding your accountant means. They file. We plan. You get the benefit of both.
Why this matters more after fifty-five
During your working years, taxes mostly happen to you. Your employer withholds, your CPA files, and the number is what it is. In retirement that flips. You decide, every year, how much taxable income you will have, because you decide where the money comes from. A couple with a traditional IRA, a Roth, a brokerage account, and two Social Security benefits has more control over their tax bill in retirement than they ever had while working. Most people do not realize this until someone shows them.
The decade or so between leaving work and taking required distributions is where a large share of lifetime tax savings is won or lost. It is also the stage of life nearly all of our clients are in, which is why tax planning sits at the center of what we do rather than off to the side.
Keeping it simple
This subject is as complex as it is. There are rabbit holes in tax planning we could go down all day, and we try not to. Our job is to understand the complexity so that you do not have to, and to bring you a short list of decisions in plain English. Do this in December instead of January. Take from this account first. Give this way instead of that way. If a plan cannot be explained at your kitchen table, it is not finished.
A few things tax planning does not include
- Preparing or filing your return. Your CPA does that, and you still need one.
- Tax or legal advice. We coordinate with your CPA and your estate attorney. We do not replace them.
- Guarantees. Tax law changes, your situation changes, and a plan has to be revisited every year.
Key takeaways
- Tax preparation reports a year that already happened. Tax planning shapes the years that have not happened yet.
- We do not prepare returns. We read them, build a multi-year strategy, and guide your accountant so the return reflects the plan.
- The biggest opportunities usually sit in the years between retiring and taking required distributions.
- The subject is complicated. The decisions you get from us should not be.
Frequently asked questions
Do I still need a CPA if I work with you?
Yes. We do not prepare or file returns. We work alongside your CPA, and with your permission we share the plan with them directly so the filing matches the strategy.
Will you talk to my accountant?
Yes, with your permission. Most CPAs welcome it. They are at their busiest from January to April and rarely have time to look forward. We do that part and hand it over.
What do you need from me to get started?
Your most recent federal and state returns, statements for your retirement and investment accounts, and a rough idea of when you want to stop working.
When should tax planning start?
Ideally a few years before retirement, while the low-income window and the Social Security decision are still ahead of you. If you are already retired, it is still worth doing. Required distributions, Medicare premiums, and giving decisions are in play every year.
Is a Roth conversion always a good idea?
No. It is one tool. Whether it makes sense depends on your current bracket, your likely future bracket, how you would pay the tax, and what you want to leave behind. We model it before we recommend it, and sometimes the answer is to leave things alone.